Abstract In Anglo-American law, fiduciary duty is the core legal concept to address conflicts among directors/managers and shareholders. The concept is developed and constantly refined by courts in the process of adjudication. By contrast, most civil law jurisdictions, including many transition economies, either lack the procedural rules that would enable parties to bring such cases to courts, or have not developed a sufficient body of case lay to determine the contents and meaning of this concept. This paper asks, whether courts should be allocated the right to define and enforce fiduciary duty principles. Based on our theory of the incompleteness of law, this paper argues that when law is highly incomplete, but the expected harm can be contained and does not cause externalities, allocating lawmaking and law enforcement to courts is optimal. Breaching fiduciary duty is such an area, as harm is typically limited to shareholders of a given company. While courts in transition economies may have difficulties living up to the task of exercising lawmaking rights in this area, we propose that there are few alternatives and that encouraging an active learning process should therefore be encouraged. We investigate emerging case law on the duty of loyalty in Poland and Russia and draw some comparisons to German case law Keywords: incomplete law, transition economies, fiduciary duty, law enforcement JEL Classifications K10 K23 K40. K42 P3 Katharina pistor Columbia Law school 435 West 116th Street New York NY 10027 United States phone:212-854-0068,fax:212-854-7946 e-mail: kpisto@law. columbia. edu Chenggang Xu Department of Economics London School of Economics Political Science(LSE) Houghton Street London wc2a 2AE United Kingdom phone:+44-207-7955-7526,fax:+44-207-7831-1840 e-mail: cxu@lse. ac ukAbstract In Anglo-American law, fi duciary duty is the core legal concept to address confl icts among directors/managers and shareholders. The concept is developed and constantly refi ned by courts in the process of adjudication. By contrast, most civil law jurisdictions, including many transition economies, either lack the procedural rules that would enable parties to bring such cases to courts, or have not developed a suffi cient body of case law to determine the contents and meaning of this concept. This paper asks, whether courts should be allocated the right to defi ne and enforce fi duciary duty principles. Based on our theory of the incompleteness of law, this paper argues that when law is highly incomplete, but the expected harm can be contained and does not cause externalities, allocating lawmaking and law enforcement to courts is optimal. Breaching fi duciary duty is such an area, as harm is typically limited to shareholders of a given company. While courts in transition economies may have diffi culties living up to the task of exercising lawmaking rights in this area, we propose that there are few alternatives and that encouraging an active learning process should therefore be encouraged. We investigate emerging case law on the duty of loyalty in Poland and Russia and draw some comparisons to German case law. Keywords: incomplete law, transition economies, fiduciary duty, law enforcement JEL Classifications: K10, K23, K40, K42, P3 Katharina Pistor Columbia Law School 435 West 116th Street New York NY 10027 United States phone : 212-854-0068 , fax : 212-854-7946 e-mail : kpisto@law.columbia.edu Chenggang Xu Department of Economics London School of Economics & Political Science (LSE) Houghton Street London WC2A 2AE United Kingdom phone : +44-207-7955-7526 , fax : +44-207-7831-1840 e-mail : c.xu@lse.ac.uk